It is all very well to own a real estate property, but when it comes to day to day life, what is required is cold, hard cash flow! One way of turning a home into cash is to sell the property and move into another place. Another option is to get an equity release mortgage on the property. Equity release schemes allow you to free up some of the value built up on the property without the need to sell or move out.
One of the main attractions of equity release is the fact that it allows you to continue living in the same house, while giving you the flexibility to use up a portion of the equity built up on the property as cash. This is essentially a loan, which is repaid to the equity release provider once the house is sold. So when is the house sold? Equity release schemes work in such a way that the property cannot be sold until the owner has either died or moved into permanent care. Once this happens, the house is sold and the money recovered.
A common concern is that an equity release mortgage can run up huge debts that can even turn into negative equity on the house. This means that once the house is sold, if the sale price of the house is lower than the amount owed, this needs to be paid as well. While this may have been a potential risk with some equity release schemes in the past, most modern equity release plans come with a no negative equity guarantee.
An equity release mortgage is designed to last over a long period of time, however, this is not to say that the loan cannot be repaid earlier if chosen. Many equity release schemes, however, have early repayment charges which apply if the loan is paid ahead of the contract term. These charges are meant to protect the lender from losses incurred due to early repayment.
Whether it is a lifetime mortgage or a home reversion plan, most equity release schemes have certain guarantees that ensure that the owner can continue to live in the property for as long as they live, and that the property cannot be sold until then. However, an equity release mortgage is a big thing and has serious implications. It’s important to seek expert unbiased advice to find out whether it is the right option for you.